AMD vs Intel: The chips are down

The competition between the chip rivals has escalated into a full-blown legal spat which only one company will walk away from with its reputation intact

This week the gloves came off in the struggle between up-and-coming chipmaker AMD and market leader Intel. AMD filed a lawsuit against Intel in the US courts accusing the chipmaker of anticompetitive practices.

What does AMD say Intel's done?
AMD says that Intel has misused its 90 percent market share to lock it out of the business, primarily by persuading major OEMs such as HP, Dell and IBM to restrict the number of AMD-based products in their line-up, or even exclude them entirely.

Why would these companies listen to Intel?
Intel makes no secret of various sweeteners it offers to companies, such as funding product development, paying for marketing and straightforward discounts in exchange for guaranteed sales. AMD says that Intel also uses 'first dollar' discounts, threatens to withhold supplies if AMD based products are sold or marketed, and put pressure on distributors and retailers to with

First dollar?
This is where Intel pays an OEM cash equivalent to around ten percent of the chip price for every chip bought, but only when the company hits a certain level of purchases. That level, says AMD, is set to limit AMD's sales to a small percentage of the total. If the OEM buys more AMD parts and doesn't hit the Intel discount trigger, they lose a large chunk of cash — timed to appear just before the OEM's quarterly results.

Can't AMD just match Intel's discounts?
AMD says that the range of Intel's discounts and other financial incentives means that there's nothing AMD can do — including giving its chips away — to match them. With Intel's profit margins running at 40 percent and nobody else in double figures, Intel can afford to maintain its market share though 'economic coercion'.

What's illegal about discounts?
If they're not equitably available, not tied to excluding a competitor, not secret and not pitched at a level designed to harm a smaller competitor, nothing. AMD has a tough job proving that Intel did what it claims and that it's illegal. However, earlier this year the Japanese government found Intel guilty of such practices. Intel denied it was doing anything wrong, but stopped the practices anyway.

Is there anything else Intel's supposed to have done?
AMD says that Intel is developing the next generation of memory interfaces in 'secret committee' with memory companies, deliberately locking out AMD and giving Intel a considerable head start when the products are announced. It has also been claimed that Intel's compilers, popular in the industry, generate code that senses when it's running on an AMD chip and consequently runs poorly, if at all.

Why wouldn't companies just give up Intel and go for AMD?
AMD is much smaller than Intel, so it would be a considerable extra risk for an OEM to pin its products on it alone. Also, it can't produce the numbers of processors or the range of support chips that Intel offers — any company relying on AMD would have far fewer options.

What is Intel's response likely to be?
Robust. Intel has been investigated before for anticompetitive practices, and is experienced in defending itself. With billions of dollars and a whole business method on the line, the company will mount an aggressive and practiced defence.

What happens if AMD wins?
AMD's asked for treble damages and its complaint stretches back to 1984, so damages could be expected to be in the multiple billions. Moreover, Intel would be banned from some proportion of its existing incentive schemes offered to OEMs, so AMD would be expected to provide a much bigger share of the market. Intel would have to compete on straightforward margins. Prices won't change much, but diversity will increase.

What happens if Intel wins?
AMD's prospects look gloomy if it loses. The court case is a frank admission that the company has failed to gain market share despite having technologically competitive products. If the court fails to find that dirty tricks are behind AMD's market woes, then the only other reason is mismanagement. Investors, customers and developers are unlikely to find this an attractive reason to work with AMD.


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